Tobacco & RRP Report
Interview: Habanos aims to build on resilient pandemic performance
Senior executives from Cuban cigar group Habanos talk about recovery from the pandemic, innovation and the role of travel retail as a vital showcase.
While the pandemic hit travel retail sales hard, many brands in the luxury lifestyle categories managed to offset the worst of the impact through strong domestic and online business. That was certainly the case for Cuban cigar company Habanos, which posted a record year for sales in 2021, at US$570 million.
Speaking to The Moodie Davitt Report, Habanos Vice President Development José María López Inchaurbe explains: “From a consumption viewpoint Habanos emerged reinforced. First, take into consideration that tobacco shops were considered essential retail in many countries. In most of Habanos’ relevant markets the business remained open. We could therefore offer service for consumers to enjoy a Habano at home. Many of our ‘aficionados’ took cigar consumption as a moment of relief during this stressful period.”
While sales surged, production was limited by COVID-19 rules, which prevented the traditional ways of working, typically with cigar hand rollers lined up tightly next to each other in the factories. “This was especially the case in 2021,” says López Inchaurbe. “Because Cuba is an island it managed to be isolated from the worst impact early on but that changed a little in 2021, from March to October in particular. Then there were restrictions in the factories including how many rollers were employed at one time due to social distancing.
“But because of the stocks Habanos had in place and which our retailers and distributors managed well, we were able to achieve good results.”
Investing as the recovery gains momentum: Habanos Operational Marketing Director Ernesto González Rodríguez (left) and Vice President Development José María López Inchaurbe
Nor did the crisis halt the company’s innovation agenda, according to Habanos Operational Marketing Director Ernesto González Rodríguez. “In 2021 we introduced 38 new products to the market and in the first half of 2022, 11 more.
“In September this year we were able to celebrate the 55th anniversary of Cohiba, which had been postponed, and that was a momentous event. Our aficionados could come together finally to toast this anniversary. We held some successful virtual events during the pandemic, including the annual Habanos World Days, but to gather the Habanos ‘family’ in person was even more special.”
New products are being released this year to mark the anniversary of Cohiba, one of the great names in premium cigars. For one of these, Habanos partnered with leading distributor Phoenicia TAA Cyprus to launch the Cohiba 55 Anniversary Limited Edition – an event celebrated in style in May.
With demand returning across all channels and markets, the challenge today is to meet the needs of increased demand, says López Inchaurbe. “You cannot just switch on production with a handmade product that must meet a high level of quality. It takes time.”
A celebration of Cohiba 55 earlier this year, a landmark anniversary for the premium brand
That challenge has been made more difficult since Hurricane Ian ripped through the west of Cuba in late September, devastating large parts of the Habanos tobacco heartland. Those plantations will take time to recover, the company acknowledges, but it says this will happen in time for next year.
Rebuilding the share of sales from travel retail – around 25% pre-pandemic – also presents a challenge, says López Inchaurbe. “Our customers became used to not buying in duty free as travel stopped and the shops were closed. The channel now has to recover, especially in Asia. That is something we must work on.”
Across all sales channels, Asia now represents around 14% of sales, a figure that is increasing. By country worldwide, China is the number one market in value (a status it attained in 2020), and second in volume.
Beyond expanding geographically to new territories, Habanos is also looking to grow its consumer base to include a new generation of adults who are discovering the category.
Singer James Morrison headlines the Cohiba 55 celebrations. The company is aiming to attract a younger adult audience to its premium brands.
González Rodríguez says: “We are working hard in social media to build awareness about our history, quality, image and the culture of Habanos brands. We have made some changes to attract new generations to the Festival, through entertainment and other experiences. We saw this with the launch of the Cohiba 55thanniversary event with Phoenicia, and that is a coming trend. We see more young people and more women too who are enjoying our brands.”
On how consumer tastes are changing, López Inchaurbe says: “We see a higher than ever demand for exclusives and more limited-edition products. People want to show they have bought something different. They want to show off their lifestyle through a quality product.”
This is where travel retail can help Habanos’ brands stand out. “Duty free is a showcase for all luxury and especially Cuban cigars,” says López Inchaurbe. “We introduce exclusives for the channel every year, and these are highly popular. It’s a very important channel for us.”
New lines for travel retail from Quai d’Orsay – a long-established brand icon – were a heavy focus at the recent Cannes show, with further developments in the pipeline.
Through partners such as Phoenicia Group in Lebanon and beyond – and superb retail locations such as the La Casa del Habano stores – the category has been elevated to new heights in travel environments.
“Duty free is about the experience, not just the sale,” says López Inchaurbe. “You have to compete hard for every square metre. We are small compared to some of the major players from other product categories. It requires a lot of investment and it is also important to address the right opportunities. And it comes down to the commitment of the distributor and of the operator of the shop.”
That investment will be ramped up in 2023, as the business accelerates. For Habanos more widely, gathering the Cuban cigar world to celebrate at the 2023 Habano Festival is among the priorities. González Rodríguezsays: “Our aficionados can visit the plantations, visit the factories and return to us after two years in which we missed them. It will be a great time to be in Cuba and an opportunity to amplify our plans.”
Habanos has carefully positioned Cuban cigars as premium lifestyle products over many years, and the pandemic has only reinforced that as a core value, says senior management.
González Rodríguez concludes: “Everyone has realised the importance of the good moments in life. For Habanos aficionados, even if we are back to more ‘normal’ times, they want to take time to smoke a Habano and have a moment of enjoyment.”
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